Forced Offline: proposed penalties under the anti-fraud law

In the name of preventing and deterring fraud, China’s Law on Telecommunication Fraud authorizes severe limits on access to communications and financial services- even for those who haven’t been convicted of fraud or any crime.

Article 31 of that law called for the Ministry of Public Security to formulate more detailed provisions on these penalties, and a draft has now been released for comment through Dec. 12.

The Conduct Targeted

Article 31 and the draft provisions focus on the illegal acquisition or sharing of certain communications and financial tools and accounts that are frequently implicated in fraud cases (see Box A). In China, such accounts must be linked to a responsible individual or entity through the country’s real-name registration system. Scammers naturally try to avoid detection by using accounts registered to someone else, and the draft provisions aim to stop this by punishing the buying, selling, lending, or leasing of these accounts, or helping others fake their identities or pose as someone’s agent.

Three types of Discipline Measure

The provisions authorize three types of discipline measures: financial network and credit discipline measures:

Financial Measures (article 6)

Three types of financial measures are to be organized by the People’s Bank of China and implemented by both banks and non-bank payment systems.

The first is stopping remote transactions from bank accounts or digital RMB wallets. An exception is made for payments to government offices and utilities, for taxes, utility bills, social security etc.
The second is that only transfers or withdrawals of the existing balance will be allowed for payment accounts (non-banking), but no incoming funds permitted;
No new accounts: payment accounts and digital RMB wallets must not be opened at all, and any bank accounts must follow the rules against remote transactions in item 1 above.

Network/ Communications Measures (article 7)

The Ministry of Industry and Information Technology and the Ministry of Public Security are to organize online services and telecoms to implement 3 types of “network discipline measures”:

The targets’ communications instruments (including phone cards, IoT cards, landlines, communications lines, sms ports, web addresses, domain names) are to be shut down except a single phone line that is unrelated to the case.
Stopping social media and other content accounts linked to the targets’ phone and internet accounts if there is a fraud risk; and stopping the opening of new accounts. Again, a single line that is not involved in the case is to be left open.
No new accounts or online services such as web hosting or software distribution are to be given to targets.

Credit Measures (article 8)

Credit here is largely limited to information sharing. The police are to share information on some targets with other agencies through the National Credit Information System and publicly display it on the Credit China website. Information is also to be shared with the Bank of China’s financial credit information databases.

Two groups of targets:

There are two distinct types of “discipline targets” provided for in article 31 and the new measures:

Convicts: Persons who have been criminally sentenced for telecommunications fraud or related offenses such as interfering with credit card management, personal information violations, hiding criminal proceeds, and facilitating or participating in illegal border crossings (large numbers of people have crossed into neighboring nations, particularly Myanmar, as part of China-facing telecom fraud rings). These discipline measures will be on top of the criminal punishment they were given at trial by a judge.
Designated Persons: A second category is people who have not been convicted at trial, but have been designated as targets by police because they have assisted in the illegal transfer or acquisition of relevant controlled accounts. They may be designated if they (1) provided 3 or more controlled accounts (2) provided controlled accounts 3 or more times, or (3) provided controlled accounts to 3 or more people. Those who fake identities or agency relationships to facilitate the illegal transfer or acquisition can also be designated, and the “3 or more” volume requirements above can all be waived where the harm caused was substantial.

The type and duration of discipline measure applied can vary by the category of the target and severity of the offense:

Convicts are subject to the Financial and Network discipline measures above, for a period of 3 years. Those that were sentenced to prison, may also be subject to the Credit penalties above.

Designated Persons are also subject to Financial and Network discipline measures, but only for a two-year period. Credit discipline measures may be applied where controlled financial accounts (bank, payment system, or digital RMB) are involved.

Conclusion

There is no question that telecom fraud is a serious problem in China, and one that impacts and angers large numbers of citizens. It is no surprise that the government is eager to stop it, The real name registration system is intended to make all online misconduct easily traceable back to a party that can be held responsible. Clearly, it has not been entirely successful, or these draft provisions on stopping those who circumvent it wouldn’t be necessary.

The problem is that while the various types of controlled payment, communication, and web accounts are all tools of the criminal trade, they are also the tools of normal, lawful, daily life. Restricting scammers’ access to such tools for a time is reasonably connected to their offense and may lower the risk of recidivism, but it may also impact their ability to integrate normally with society.

These tools and accounts have become an essential part of modern life, and cutting people out off from them may alienate them even more than intended. We can see that the draft provisions attempt to address this with exceptions in the discipline measures allowing discipline targets to maintain a single phone line etc., but limits on online payment remain severe.

As to ‘Designated Persons’ the police gain a vast new power that is all too easily abused. Entirely outside of the court system or other external check, police can designate someone as a discipline target, largely blocking them from modern payment systems. An objection and appeal procedure is provided, but that must also go through the police. This is no surprise as it was the Ministry of Public Security that created this draft.

Hopefully, further protections will be added as the drafting process goes forward- at the very least mentioning a right to appeal a designation to a court.